52-Week-Low Alert: Best Buy

Shares of Best Buy (NYS: BBY) hit a 52-week low today. Let's look at how it got here and see whether this is just the start of the storm.

How it got hereToday's drop was a reaction to CEO Brian Dunn's resignation just two weeks after announcing a major strategic shift for the company and a fourth-quarter loss of $4.89 per share. Since then, shares have plunged, and when Dunn threw in the towel, investors kicked their selling into high gear, pushing the stock to a new low.

This has really been a long, slow dive for Best Buy, driven by competitors and consumers' increasing preference to shop online. Amazon.com (NAS: AMZN) is often pointed out as the culprit in Best Buy's downfall, but Target (NYS: TGT) and Wal-Mart (NYS: WMT) have probably played a bigger role. Best Buy used to be the only shop in town, with a wide selection of TVs, DVDs, and video games. Today, you can go to Target or Wal-Mart and pick up those items and a loaf of bread at the same time. It's no wonder these stocks have all outperformed Best Buy over the past year:

A value? Or a value trap?What investors are now left with is a company that's making solid profits but has seen growth stall out. On a value basis, Best Buy looks cheap, but its growth rate looks anemic, even compared with discount giants.

Company

Price/Book

2011 Revenue Growth

Forward P/E

Best Buy

1.8

0.9%

5.8

Amazon.com

11.3

40.6%

73.4

Target

2.4

3.7%

11.6

Wal-Mart

2.9

5.9%

11.3

Sources: fool.com and Yahoo! Finance.

The company's growth days are behind it, but profits are expected to continue at a strong rate. This looks like a great value, but beware of catching a falling knife.

What's next?Strategically, the future doesn't look good for brick-and-mortar electronics retailers like Best Buy and Radio Shack (NYS: RSH) . Circuit City has already shown that it's tough to survive when the new competition takes away market share, and these two may be headed in the same direction.

If Best Buy can leverage its service side with the Geek Squad and reduce its retail footprint to a more manageable size, I could see the company surviving, but when retailers stop growing, the story usually doesn't end well. Our CAPS community has already dropped Best Buy to a dreaded one-star rating, and I'm inclined to agree that the stock isn't a great buy right now. When shares stop plunging day after day, the stock may be worth another look, but only if Best Buy can prove that it can transition from a growth machine to a cash cow. And that's a lot to ask a retailer to do.